Final answer:
The formula for net sales divided by average accounts receivable is the accounts receivable turnover ratio, which measures a company's effectiveness in managing its accounts receivable and indicates how often receivables are collected over a period.
Step-by-step explanation:
The formula the student is asking about refers to the accounts receivable turnover ratio, which is used to measure how effectively a company is managing its accounts receivable. The formula is:
Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable
This calculation helps to understand how many times a company turns over its receivables in a period. To apply this, net sales are typically used to factor out any returns or discounts, and the average accounts receivable is calculated by adding the beginning and ending accounts receivable for a period and dividing by two. Higher turnover indicates more efficient collection of receivables.
Key terms such as accounting profit, average total cost, and economies of scale relate to the broader context of how a firm manages its finances and production costs, which all ultimately affect profit margins and the financial health of the company.